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Old 08-31-2021, 07:13 PM   #81
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I think a factor that few incorporate in their calculations is the tax arbitrage that has already occurred. For example, most of the money I put in my 401k was put there when my marginal tax rate was 35% or more. Some years, it was 39%. So for every $1000 I contributed, I saved $350 in taxes. So now, many years later, I take out my $1000 contribution. If I am now in the 22% marginal bracket, I pay $220 in taxes. That's $130 in free money right there, not even counting the compounded gains on the extra $350 that was in my after tax account that whole time.
Why would that be a factor in the conversion calculation? Just like there are "sunk costs", that was a "sunk benefit". You got that benefit and it was great, but now it's time to evaluate whether and how much to convert.
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Old 08-31-2021, 07:17 PM   #82
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Why would that be a factor in the conversion calculation? Just like there are "sunk costs", that was a "sunk benefit". You got that benefit and it was great, but now it's time to evaluate whether and how much to convert.
You are quite correct. The question for us now is: Looking ahead, what is the optimal strategy? But let us not forget that we did get a benefit when we set that money aside tax free. It may make us less cranky about paying taxes now.
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Old 08-31-2021, 07:21 PM   #83
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It may make us less cranky about paying taxes now.
YES! The original deferral means you are paying taxes later, not earlier, and less of them to boot!
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Old 09-01-2021, 11:09 PM   #84
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2 other factors when not to convert could be:

1) The ACA tax subsidies generated by limiting one's MAGI can be larger than any Roth conversion benefit.

2) If one wishes to keep some monies in a TIRA to use against potential large unreimbursed long term care type medical expenses.


Iím curious about #2 - is there a benefit to having money for unreimbursed LTC/medical expenses in a tIRA vs a Roth?
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Old 09-02-2021, 03:01 AM   #85
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Iím curious about #2 - is there a benefit to having money for unreimbursed LTC/medical expenses in a tIRA vs a Roth?
My thinking was as follows:
If one has for example 100k in a tIRA and then converts 100k to a Roth, let's say they will pay 12% taxes even if from a taxable account.
If LTC expenses are 100k, they still paid 12k in taxes.
Now if they kept the monies in a tIRA and they used 100k of the tIRA to pay the 100k of LTC expenses, they would get a tax deduction of 100k less the 7.5% tax deductible and just have to pay taxes on the 7.5k which would be less than 12k.
Does that make sense?
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Old 09-02-2021, 05:16 AM   #86
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The drawback to keeping some money in a tIRA for LTC is that you probably have years of RMDs before you need LTC. And you may never need LTC. But if you do it can be 100K/yr for the rest of your life. So the math can certainly work if it happens, but it's not a clear-cut advantage.

I have a lot of unrealized capital gains in my taxable account so I'll use that rather than keep some money in my tIRA in case I have very high medical expenses later.
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Old 09-02-2021, 10:52 PM   #87
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My thinking was as follows:

If one has for example 100k in a tIRA and then converts 100k to a Roth, let's say they will pay 12% taxes even if from a taxable account.

If LTC expenses are 100k, they still paid 12k in taxes.

Now if they kept the monies in a tIRA and they used 100k of the tIRA to pay the 100k of LTC expenses, they would get a tax deduction of 100k less the 7.5% tax deductible and just have to pay taxes on the 7.5k which would be less than 12k.

Does that make sense?


Yes it does. Thanks!
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Old 09-06-2021, 11:50 AM   #88
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Please let me ask an elementary question: What does it mean when it "works"? Seriously I am getting confused by this and wanted to re-focus on the goal... Maybe we aren't all on the same page.

Thank you.
Long post warning. Thanks for reading, understand if not read fully.

Thanks to all posters for chiming in about what "works" and "doesn't work" mean. Most of the reasons are covered.

That said, thought some elaboration of what "works" for me is in order. I'm an infrequent poster but keep an eye out for threads on outsized tIRA(relative to networth) and Roth conversions on this outstanding message board. This particular topic caught my eye and especially the views of @brokrken.

Here's what @brokrken is doing really well,

- Planning for RMD at 48!
- Considering rate of return scenarios
- Not making future tax rate the top consideration
- Having a healthy nest egg already!

Here's my situation, @ 62 (numbers)
- Low probability of anything less than a 22% tax rate from now to RMD age
- Roth is 25% of net worth currently - opportunistic conversion in 2010 + supercharging via workplace Roth with 26K contribution limits during 2018-20
- Have little in after tax savings
- Rate of return over 10% since 2005 (model for less from here on)
- Retirement planning since 50; exactly mirrors @ brkrken - based on income needs versus cash on hand or tax rate or inheritance
- Plan to empty out tIRA by around RMD age- spend it down & QCD
- Live off ROTH post- RMD

Here's my approach to investing and everything else
- Rate of return primary focus - make what American Business makes
- Buy and hold investing in stocks
- Try very hard to pay close to zero in fees
- Zero belief in modern portfolio theory - asset allocation, balancing etc.
- Mentally prepared for a 50% temporary decline in net worth with a repeat of 2008-09, hold cash to live and ride out 2 years. Will always do.

- Taxes:
- Will cheerfully pay taxes, having done well, especially in retirement years.
- QCD and taxes are in one bucket for me.

- Inheritance:
Used to not even think about this 15 years ago or earlier. Because I was obsessed with the thought "Don't have enough" to get through our own lives! Slowly as the investment approach started to work out, it went to "May have enough"; to "Have enough" and recently(cautiously optimistically) "Will have more than enough". So, passing on what's left to family is a recent consideration. I'm trying to learn from the most rational people on this subject. Both of us got nothing from our parents. We did okay on our own.

My own thoughts are that, given that I myself was living under "don't have enough" until about age 50, squirreled away every penny that we could, during our prime years (my age 30-50, spouse 25-45, kids 0-15). We were postponing spending on little luxuries like the nicer vacation, running cars to the junk yard, buying that jewelry for the spouse etc. All in order to overcome my own fear of "not having enough". For ex. we always maxed out on 401K's to the fed limit etc. What is the inheritance going to be worth to my family when they are 50 to 70 years of age after a life of postponing consumption at 0-45 ages

TL DR version, I really don't worry about leaving a large pile, let alone the tax implications for heirs. Based on my numbers outlined above, best outcome is that it's likely to be in Roth money, which allows (my best understanding), 10 years for heirs to draw down. That's good enough for me to stop breaking my head over this. If one of us passes before RMD, we increase QCD, pay taxes etc.

I post this with respect to all points-of-view around "What works". Each person's situation is unique and generalizations should not be attempted.
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Old 09-06-2021, 12:04 PM   #89
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@free2020, are you really able to empty your traditional IRA via spending and QCDs by RMD age without exceeding that 22% rate?

It seems from your description that you may be draining your traditional IRA too fast and paying more in taxes than is necessary. But since you have more than enough and don't care about taxes, I suppose that's OK.
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Old 09-07-2021, 11:33 AM   #90
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@free2020, are you really able to empty your traditional IRA via spending and QCDs by RMD age without exceeding that 22% rate?

It seems from your description that you may be draining your traditional IRA too fast and paying more in taxes than is necessary. But since you have more than enough and don't care about taxes, I suppose that's OK.
Good question. Honestly donít know if I can empty it out by 72. I believe it is likely but, it depends on how well the investment approach works out.

Would love to,
a) live to RMD😅
b) deal with the smaller, remnant tIRA which should..
c) lengthen the Roth runway

Frugality is natural for us and perhaps easier in our 70ís. And thereís the Roth. Preaching to the choir here, but I tell all youngsters to supercharge their Roth in their younger days. Fund 401k to co match-Roth contribution-and then all other savings. Put it in an index fund and forget about it!
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Old 09-08-2021, 08:05 AM   #91
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And thereís the Roth. Preaching to the choir here, but I tell all youngsters to supercharge their Roth in their younger days. Fund 401k to co match-Roth contribution-and then all other savings. Put it in an index fund and forget about it!
Yes, this is the "old me" talking to the "young me." Too bad the old me wasn't able to cross that time chasm. As we typically say now: A First World problem!
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Old 09-26-2021, 01:42 PM   #92
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Yes, this is the "old me" talking to the "young me." Too bad the old me wasn't able to cross that time chasm. As we typically say now: A First World problem!


Amen to that!
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